TMI Blog2017 (5) TMI 425X X X X Extracts X X X X X X X X Extracts X X X X ..... uirement for the applicability of the provisions of sub-clause (v) of section 2(47). Thus, this ground is dismissed. CIT(Appeals) observed that the value of share of consideration of 27% of saleable or super-built area including parking places of the project allotted to the assessee on transfer of undivided share of 73% of land surrendered in favour of developer to be valued on the basis of guideline value of said undivided share of land allotted to the developer. In our considered opinion, this is also not appropriate method to determine the consideration receivable by the assessee on account of JVA dated 10.09.2006. In our considered opinion, cost of construction of built-up area of 27% of saleable or super-built area including parking places of the project allotted to the assessee to be ascertained by the Assessing Officer after examining the relevant record of cost of construction incurred or to be incurred by the developer. Accordingly, this said cost of construction would constitute as sale consideration received by the assessee in kind and that should be brought to tax in the assessment year 2007-08. If necessary, he could take assistance of DVO or any experts so as to ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing proper reasons and justification. 12. The CIT(Appeals) erred in confirming the disallowance of _7,95,000/- being the expenses incurred for business promotion/advertisement in sponsoring cricket tournaments and a corporate box in the cricket stadium by recording cryptic findings in para 5.4.1 of the impugned order in the computation of taxable total income without assigning proper reasons and justification. 2.1 The Revenue has raised the following ground : 2.2. The Ld. CIT (A) failed to appreciate that the AO has adopted sale consideration of _ 42,16,24,000/- as value of 27% of share of constructed area as per clauses 12.1 and 12.4 of JV agreement which represents market value of property on date of transfer. 2.3 The Ld.CIT(A) has failed to apply the decision of Karnatka High in (2012) 26 Taxmann .com 166 in CIT Vs. Ved Prakash Rakhra 210 Taxmann 605 which has clearly held that the consideration received is market value on the date of agreement and the same has to be taken while computing capital gains. 3. The facts of the case are that the assessee company had filed a return of income on 30.10.2007 declaring total income of _37,91,560/-, which was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reason for reopening u/s.147 of the Act. The assessee has not asked for reasons for reopening. But at the time of personal appearance of the assessee s representative on 9.9.2014, the reasons for reopening the assessment is informed to him and requested to furnish the details called for vide notice u/s.142(1) dated 3.9.2014. In the above notice u/s.142(1), the assessee is requested to furnish the copy of purchase deed of land at Alathur and copy of power of attorney, if any executed in favour of M/s. Parsvnath Builders and therefore, it is clear that the reasons for scrutiny have been informed to the assessee. 4. Regarding reopening of assessment, ld.A.R submitted before us that there is no fresh material to re-open the assessment. Only on the basis of documents already on record was used for the purpose of reopening of assessment, and after four years of ending of the relevant to assessment year, re-open of assessment is bad in law. Ld.A.R prayed that though there was no assessment, and only processing of return u/s.143(1) of the Act, the re-assessment cannot be valid. He relied in the judgement of Delhi High Court in the case of CIT Vs. Orient Craft Ltd., in 354 ITR 536(De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot the concern at that particular stage. So what is required is the subjective satisfaction of the Assessing Officer based on objective material evidence. The reason was recorded as discussed above. The argument of the ld.AR is that where there was no fresh tangible material to reopen the assessment u/s 147, no action could be taken after the expiry of four years from the end of the relevant assessment year unless the assessee has disclosed fully and truly all material facts necessary for the assessment for that assessment year, inter alia. 5.2 As seen from the reasons recorded, it gives a clear picture that the Assessing Officer has got material evidence to form his opinion for taking recourse to section 147 r.w.s 148 of the Act. There cannot be two opinions. At the point of time when the reasons are recorded, forming opinion of escapement of income is only relevant. Hence, this plea of the ld.AR is not tenable in the eyes of law. It is true that u/s 147, the Assessing Officer can either assess or re-assess but for taking action there under, he has to record reasons that income chargeable to tax has escaped assessment . It is also mandated by section 148(2) to record reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me from assessment and the reasons recorded have a link with the formation of his belief, he has the power u/s 147 of the Act. 5.3 In the present case, the assessee has not shown capital gain arising out of joint venture agreement dated 10.09.2006 with M/s.Parsvanath Developers Ltd., though the assessee has received an amount of ₹ 7,02,54,000/. As per Explanation 2 of Section147, it is very clear that due to nondisclosure of capital gain by the assessee, the income chargeable to tax had escaped assessment. The assessee has not produced anything before the Commissioner of Income Tax (Appeals) to show as to how there is no transfer of impugned property in assessment year and how the provisions of section 2(47)(v) is not applicable. Hence, the action of Commissioner of Income Tax (Appeals) and that of Assessing Officer is fully covered by the provisions of Explanation 1 to Section 147 of the Act is not correct. The said provision reads as under: Production before the Assessing Officer of accounts books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, this ground of appeal of the assessee is rejected. 6. Now the next ground for our consideration is with regard to bringing to tax the long term capital gains by applying the provisions of Sec.2(47)(v) of the Act. 6.1 The AO brought to tax the long term capital gains aggregating to ₹ 39,77,60,547/- on the application of sec.2(47)(v) read with sec.45 of the Act, are that the assessee objected to the addition before the AO by stating that Sumeru Soft Pvt. Ltd. has purchased an extent of 31 acres 78 cents approximately agricultural punja land in village karungullipallam, Alathur Panchayat Board Limits,Thiruporu Panchayat Union, Taluk Chingleput, Kanchipuram District on 9.6.2001. During the assessment year,Sumeru Soft Pvt. Ltd. entered into a joint venture agreement with Parsvanath developers limited for developing a multi facility complex consisting of IT/TIES parks, commercial, service and residential apartments. The agreement was entered into on 10.9.2006 and pursuant to the agreement, a refundable security deposit of _7,02,54,000/- was received during the previous year relevant to the assessment year 2007-08. According to ld.A.R, the status of the property till date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and the owners agreed that the developer may in their own can raise any loan for development and construction of the project from any Banks / Financial institutions and for that purpose the developer shall deposit the title deed of the project land with banks / financial institutions. 6.3 According to the AO, as per the above agreement the assessee company, M/s. Sumeru Soft P. Ltd. executed General Power of Attorney in favour of the developer, M/s. Parsvanath Developers on 12.9.2006 and the same was registered before the Sub-Registrar, Mylapore vide DOC. No. 1515/2006 dated 12.9.2006 has given the rights to the developer as mentioned in the joint venture agreement. The AO observed that the transfer in terms of sec.2(47)(v) of the Act, took place on the date of execution of the joint venture agreement dated 10.9.2006. The General Power of attorney executed by the assessee on 12.9.2006 in favour of the developer unequivocally granted bundle of possessory rights including the right to mortgage the 77.5% of the property and raise loans from banks to the developer. The irrecoverable power of attorney executed by the assessee in favour of the developer has to be regarded as transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3.2015, the assessee had brought to the notice of the AO that the proposed project of building residential and commercial space had never took off and hence, the taxation of capital gains on the presumption of deemed transfer of 73% of undivided share of land in favour of the developer is consequently not correct. The subsequent event of the non development of the land in question is very relevant factor for consideration in the reopened assessment under consideration and the reopening of the assessment took place from the issuance of a reopening notice on the assessee on 26.3.2014 inasmuch as even after the lapse of nearly eight years, the proposed project never implemented. Hence, the presumption of deemed transfer in such circumstances would fall to the ground. The taxation of deemed transfer as per sec.2(47)(v) of the Act could be pressed into service only in the context of a successful joint development arrangement and not otherwise. The AO while rejecting the stand of the assessee had placed reliance on the Income Tax Inspector s (ITI) site visit report and observed that the property under consideration was transferred in favour of the developer in the previous year relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. The assessee argued before the Learned Commissioner of Income Tax(A) that there was no prohibition for the AO to cross verify with the developer independently in order to ascertain the correctness of the assessee s submissions. The failure of the AO in conducting cross verification with the developer independently would vitiate his decision completely. Therefore, the presumption of transfer u/s.2(47)(v) of the Act is not correct and is liable to be interfered with in cancelling the reassessment under consideration in all respects. 7. The assessee submitted before the Learned Commissioner of Income Tax(A) that the taxation of LTCG especially in the context of the legal presumption of deemed transfer cannot be considered as automatic on the entering into the related agreements as well as putting the other party/developer into possession for implementing the arrangement/agreement. The events which would occur after the execution of the arrangement/agreement for development are very much relevant for the purpose of invoking the deemed transfer provisions in the Act and the failure of the implementation of the project for various reasons including financial reason would be decisiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. The AO equated the security deposit received to the extent of _7.02 crores to the value of constructed area of 4.5% of the total entitlement of the constructed area to the assessee at 27% and accordingly the AO proceeded to quantify the value of the 27% of the constructed area at _ 42,15,24,000/- for adopting such sum as sale consideration for the transfer of 73% of UDS in land in favour of the developer. The said approach of the AO was based on clause 12.4 of the joint venture agreement which is extracted herein after for immediate reference : 12.4 Out of the 27% areas earmarked for the Owners, 4.5% of the areas of the project shall be sold back by the Owners to the Developers or their nominees together with proportionate undivided share of land @ _ 1000/- (Rupees One thousand per sq.ft.) Such 4.5% of area shall be out of each category i.e. residential apartments, service apartments, commercial complex and IT Park. The consideration amount for the purchase of said 4.5% of the areas out of owners designated areas shall be paid by the Developer by way of adjustment out of the interest free deposit amount in terms of clause 10.1. Such amount, if any, exceeding the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of taxation in accordance with sec.50C of the Act. The said stand of the assessee is alternative to the main stand of the non applicability of sec.2(47)(v) of the Act. 7.2 The CIT(Appeals) observed that the capital gains are taxable in the year of possession of property and not transfer of title under the IT Act. Further, the CIT(Appeals) observed that the possession is handed over to M/s. Parsvnath Developers by the assessee in the year under consideration. The Tribunal, Mumbai Bench in the case of Gripwell Industries Ltd. v. ITO [284 ITR (AT) 188] has held that where there is an agreement of sale between the assessee and the vendee and the physical possession of the factory along with factory land, building and other assets is actually given in one financial year whereas the legal title to the property is transferred in the next financial year, the capital gains would be deemed to accrue in the year in which the possession is actually given and not in the later year when the legal transfer of title is effected. This judgment is of great importance for all persons possessing property and interested in transferring it. 7.3 The CIT(Appeals) observed that the submission o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement, question arises when the incident of capital gains tax arises. It purely depends upon the terms of development agreement. When the agreement is of such a nature that possession is given in part performance of a contest, the liability of capital gains tax will arise on the handing over of such possession. It is not the case of the assessee that only a license is given to the developer and possession shall be given on completion of project. It is not necessary that entire sale proceeds be received by the owner to attract the provision of sec.2(47)(v) of the Act. Therefore, according to the CIT(Appeals), the action of the AO in holding that the property has been transferred and the transaction would attract capital gains u/s.2(47)(v) of the Act is justified. While computing the capital gains, the AO has adopted sale consideration, being _42,15,24,000/- as value of 27% of share of constructed area as per clauses 12.1 and 12.4 of the JV agreement. According to the CIT(Appeals), stamp value of the aforesaid land has also to be kept in consideration while calculating capital gains as per requirements of sec.50C. The alternate ground of the assessee is regarding calculation of long ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even with the expression accrued as being used in the statute. The point which deserves notice is that the amount or the consideration settled may not be fully received or may not technically accrue but if it arises from the agreement in question, then the deeming provisions shall come into operation. Another point is also equally noticeable that by the presence of the deeming provision, the income on account of accrual of the capital gain should be charged to tax in the same previous year in which the transfer was effected or deemed to have taken place. Due to the presence of this statutory fiction, the actual year in which the entire sale consideration is received, is beside the point but what needs to be judged is the point of time at which the transfer took place either by handing over of the possession or by allowing the entry into the premises or by making the constructive presence of the vendee nevertheless duly supported by a legal document. 8.3 But the issue does not get settled only by the interpretation of section 45 and section 2(47)(v) because the definition of transfer does not merely prescribes allowing of possession but also that it must be retained in part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... just the existence of a contract. The assessee is the person who has entered into a contract with the developer vide agreement dated 10th September, 2006. (b) This section says to transfer , which means the said contract is in respect of a transfer and not for any other purpose. The term transfer is to be read along with the section 45 and section 2(47)(v) of the Income-tax Act. It is pertinent to clarify that one must not forget to identify the issue of capital gain with the term transfer as defined in section 54 of the Transfer of Property Act. At the cost of elaboration, we may like to add that in the past there was a long line of pronouncements; while deciding Income-tax cases, that unless and until a sale deed is executed and that too it is regis tered, transfer cannot be said to have been effected. The consequence of the said catena of decisions was that no capital gain tax was directed to be levied so long as the transfer has not taken place as per the generally accepted connotation of the term under the Transfer of Property Act. The resultant position was that the levy of capital gains tax thus resulted in major amendments in the Income-tax statute. The main obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in part performance of the contract and has done some act in furtherance of the contract . Retention of possession is one kind of the facet of part performance of the contract. The agreement in question can be said to be a distinct transaction that has given rise to the event of allowing the contractor to enter into the property. What is contemplated by section 2(47)(v) is a transaction which has direct and immediate bearing on allowing the possession to be taken in part performance. It is at that point of time that the deemed transfer takes place. According to us the possession as contemplated in clause (v) need not necessarily be sole and exclusive possession, so long as the transferee is enabled to exercise general control over the property and to make use of it for the intended purpose. The mere fact that the assessee owner has also the right to enter the property to oversee the development work or to ensure performance of the terms of the agreement, did not restrict the rights of the developer or did not intro duce any incompatibility. In a situation like this when there is a concurrent possession of both the parties, even then clause (v) has its full role to play. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veloper thereunder, the assessee was to receive 27 per cent. of the constructed area of all the floors. Further, even the vacant and peaceful possession of the property had been delivered to the assessee vide clause No.18 to 18.4 of this JV Agreement. Under the circumstances, there was indeed an exchange of property which amounted to a transfer within the meaning of section 2(47)(v) of the Act and the gain resulting from such transfer was indeed taxable in the year in which the development agreement giving vacant and peaceful possession of the property to the developer was entered into by the assessee, as held by the hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v. CIT [2003] 260 ITR 491 (Bom) and in the several decisions of the jurisdictional Income-tax Appellate Tribunal, Hyderabad, including that in the case of Dr. Maya Shenoy, Secunderabad in 124 TTJ 692. Since the development agreement in the assessee's case has been executed on 10th September, 2006 and the vacant and peaceful possession also was given in on the same date itself, such gains were indeed to be taxed in the financial year 2006-07, relevant to the assessment year 2007-08. (h) As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned development agreement has not been duly cancelled and it is still in operation, it has to be decided that there is a transfer under section 2(47)(v) of the Act in F.Y.2006-07 relevant to ay 2007-08. 9. We have to see the real intention of the parties. As per the well known cannon of construction of document, the intention generally prevails over the word used and that such a construction placed on the word in a deed as is most agreeable to the intention of the parties. There are grounds appearing from the face of the instrument affording proof of the real intention of the parties, then that intention would prevail against the obvious and ordinary meaning of the words used. Entering into the property and handing over of the possession was instantaneous thus entire conspectus of the case has attracted the provision of section 45 of the Act on fulfilment of conditions laid down in section 53A of the Transfer of Property Act. In our opinion, the real intention of the parties herein is to be seen. 9.1 Accordingly, we decide the above issue relating to transfer of property under section 2(47)(v) of the Income-tax Act in favour of the Department. We also hold that clause (47) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r clause No.10.1 of JVA. Thus, it does not mean that the cost of 4.5% of the area of the project was valued at ₹ 7,02,54,000/-. On this issue, the CIT(Appeals) observed that the value of share of consideration of 27% of saleable or super-built area including parking places of the project allotted to the assessee on transfer of undivided share of 73% of land surrendered in favour of developer to be valued on the basis of guideline value of said undivided share of land allotted to the developer. In our considered opinion, this is also not appropriate method to determine the consideration receivable by the assessee on account of JVA dated 10.09.2006. In our considered opinion, cost of construction of built-up area of 27% of saleable or super-built area including parking places of the project allotted to the assessee to be ascertained by the Assessing Officer after examining the relevant record of cost of construction incurred or to be incurred by the developer. Accordingly, this said cost of construction would constitute as sale consideration received by the assessee in kind and that should be brought to tax in the assessment year 2007-08. If necessary, he could take assistance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(Appeals) observed that the assessee has only five clients, viz., M/s. Infosys, M/s. Standard Chartered Bank, M/s. Scope International, The Cancer Institute, M/s. Sundaram BNP Paribas and an overseas client, M/s. Signature Senior Living, USA. Sponsoring any sports event or a special box even if viewed on TV channels or media does not advertise its name as its product is not for mass consumption but for very selective clients. Therefore, according to the CIT(Appeals), the action of the AO in disallowing expenditure towards TNCA sponsorship is justified. 13. We have heard both the parties and perused the materials on record. The above expenditure incurred by the assessee cannot be considered as incurred wholly and exclusively incurred for the purpose of assessee s business. This expenditure is nothing but charity or donation, which cannot be allowed as a deduction while computing the income of the assessee. We do not find any infirmity in the order of the CIT(Appeals) and the same is confirmed. The ground raised by the assessee is dismissed. 14. In the result, both the appeals by the assessee and the Revenue is partly allowed for statistical purposes. Order pronounced o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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